At the top end of the retail spectrum, transaction activity has significantly increased, providing clearer guidance on current pricing.
Centro sold a 50% interest in Centro Colonnades, Centro Galleria and Centro The Glen to the Perron Group based in Western Australia in an unusually fast transaction, indicating that a highly competitive offer was received. This reflects strong liquidity for premium quality assets. Even poorer quality assets have been transacted as purchasers take advantage of the differential between property yields and other investments such as government bonds which are now trading at historical lows.
Regional shopping centres have consistently provided one of the strongest total returns relative to other property sectors. Over the past 5 years, they have returned 6.9% which is higher than any other property sector.
For investors, they have significant destinational appeal and generally dominate their trade areas. They continue to offer stable total returns, consistent income streams and have generally remained fully let with very minimal vacancies, despite the recent economic downturn.
Institutional investors, superannuation funds and offshore sovereign wealth funds are actively seeking Regional centres given their stable core returns. However, there is a limited number of opportunities every year with a growing depth of potential purchasers, which is combining to push up prices for these assets.
As a result of the lack of stock in the regional category, interest in Sub-Regional category is growing and we expect to see a significant increase in transaction activity this year as funds start to compete for new opportunities. The availability and low cost of both debt and equity is improving feasibility outcomes and there are now numerous institutional investors looking to purchase Sub-Regional shopping centres which they can reposition using their management expertise, purchase assets which have further development potential, and those assets which offer strong reversionary growth opportunities.
The centres need to have strong fundamentals including strong trade areas, limited competition or have latent demand that can be absorbed through improving the retail offer. However, secondary centres without these attributes may still be subject to more limited investor demand.
This article first appeared in the Urbis Think Tank.
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